Corporate payments

This issue’s question

“There is a lot of talk about payments innovation in Asia Pacific at the moment, but what solutions are corporates actually using?”

Lewis Sun, Regional Head of Product, Asia Pacific, HSBC:

The payments landscape is undergoing a deep and wide transformation, creating the opportunity for innovation. Successful innovative solutions are those that address specific problems that corporates face in paying and collecting their dues domestically and internationally.

For example – India’s large mobile network operator aims to reshape its customers’ payment experience by providing a digital way to pay their phone bills and top up their credit. The operator – who has over 100m telecom subscribers, previously facilitated a traditional way of bills payment and purchases of credit, either through branch or distributors. This posed operational challenges, inconvenience, and delayed realisation for the operator.

To address this problem, the operator opted for Unified Payment Interface (UPI) – a digital solution which enables a payment through a smartphone. The solution empowers its customers with a fast, secure and around the clock payment option, with a wide coverage across the country’s bank accounts. HSBC created an innovative payment solution by combining UPI with a dynamic virtual payment address, which helps to automate the operator’s top-up and bill collections by accurately identifying the payor and the related bill/invoice. The instantaneous transfer of both value and accurate information for millions of users led to significant improvement in operational efficiency, business turnover through faster credit top-up and customer convenience.

On another front, advancing globalisation has enabled corporates to manage a larger base of international suppliers/customers, and this, in turn, has encouraged the growth of cross-border open payments. This can be linked to a real case study, where an Australia-based travel platform found that their supplier payments processes were inefficient and risky. Following significant growth and successful expansion, the customer had to manage several accounts opened in different markets and realised that they were making a higher volume of small payments to suppliers in different countries and currencies, using expensive and error-prone cross-border payment mechanisms.

Recognising that the process was too cumbersome to manage, HSBC proposed an innovative payment solution which simplifies global payments and minimises the cross-border banking fees through direct access to domestic clearing systems, using a product called Global Disbursement. The solution is aligned to the customer’s centralisation strategy, enabling them to make cross-border payments using only one account – one remittance file for multiple payments distributed globally in different currencies. This, in turn, helped the customer to improve efficiency through streamlined payment processes, reducing transaction costs by utilising in-country accounts and giving them greater control over payment flows.

Innovation in payments is rapidly developing, driven by evolving patterns of consumer and corporate needs. As the journey of the payment innovation progresses, the best value will be achieved from solutions that unearth and address the unmet and anticipated needs of corporates.

Stella Lim, Head of Corporates, Asia Pacific, SWIFT:

Asia Pacific continues to push the boundaries of technology. The region is fast becoming a hotbed for fintech innovation, including new payments initiatives rolled out by both the public and private sector. McKinsey predicts that by 2020, the global payments industry will generate an estimated US$2.2trn in revenue, over US$400bn more than the figure for 2015 (US$1trn).

While it all seems promising, unfortunately, historically there has been a lack of solutions for today’s corporates that address the issues of speed and transparency when it comes to payments. Today, customers are demanding not only faster settlement, but also improved customer service around their international transfers. It’s often difficult to track and trace cross-border payments as there is no confirmation or receipt of payment by the beneficiary, and most of the time they are not reflected real-time.

Banks are starting to address this issue by offering an enhanced cross-border payments experience to their corporate customers. Recently, DBS became the first bank in Singapore and Hong Kong to execute cross-border payments with end-to-end corporate payments tracking in these two markets, leveraging on the SWIFT global payments innovation (gpi) service. Gpi is a solution that resulted from a collaboration between SWIFT and the global banking community, which has rapidly become the new standard in cross-border payments. Since January 2017, more than 120 leading transaction banks have signed up, 30 of which are already live and performing real transactions using the service. To-date, over three and a half million payments have been processed using SWIFT gpi.

In the past, corporates and SMEs have struggled to track cross-border payments, as these transactions are routed through multiple banks, with different processing times that can take up to five days. Gpi payments are credited within 24 hours from initiation – mostly within a few hours and even minutes – which means corporates can now track their payments in real-time and get confirmation of that credit directly from their banks. This is made possible by an innovative payments tracker that comes with gpi. The Tracker is a cloud-based application accessible via APIs, and banks are using these APIs to embed the gpi Tracker information into their payments flow applications and front-end platforms.

While the current first phase of gpi focuses on business-to-business payments and helping corporates grow their international business, the second phase will include additional digital services to further transform the cross-border payment experience, such as the ability to immediately stop and recall a payment, no matter where it is in the correspondence banking chain.

The financial industry is facing unprecedented changes, driven by regulation, customer demand and technology evolution. Globalisation and digitalisation have encouraged companies of all sizes and sectors to internationalise their businesses. However, under the current correspondent banking model, banks need to monitor their overseas accounts via debit and credit updates and end-of-day statements, causing inefficiencies and significant costs along the way. Already, gpi banks are exploring how distributed ledger technology could help speed up the reconciliation of their nostro accounts. Innovation is an ongoing process, but to start with, corporates need to be equipped with the right solutions to enable better cash flow management and increased speed and visibility on critical payments.

Payments innovation is a hot topic for discussion due to the following reasons:

The rise of the platform application based economy – the reality is that the financial supply chain (making payments and receipts) has fallen behind the on-demand/real-time international service models followed by corporates.

The potential for a better tomorrow through the technology that made bitcoin possible – distributed ledger technology.

These factors, combined with the lack of significant changes to the incumbent infrastructure for payments since incubation, make it ripe for disruption by fintech firms with a fresh pair of eyes.

Corporates making payments have a need to ensure that solutions provided are reliable and timely. These mission-critical examples of moving money define how an organisation is perceived in terms of ease of doing business with. This explains corporates’ inclination towards improving the certainty and timeliness of transactions. The expectation is that primary financial intermediaries, which are predominantly banks, are to improve the way payments are made.

Though a bulk of corporate payments are still going through payments rails with their banking partners, some early adopters are experimenting with new payment technologies directly with fintech firms for both cross-border and domestic payments. As their financial services partner, banks are held accountable to provide tested, reliable and secure connections to new value transfer networks.

Standard Chartered is helping its clients, corporates and institutions alike, by providing multiple payment methods given the nature of the supply chains they transact in. The drive to provide a wider payment optionality, via our payment connections, is a key component to becoming the core bank for our corporate client relationships. This need led to the development of the bank’s proprietary connections to over 17 mobile wallet partners in 14 markets as these services have become more relevant and significant for commercial B2B, C2B and B2C payments.

Understanding the importance of collaboration and co-creation, we are also working along with the corporates and third-party providers. For example, the bank is integrating its existing infrastructure to enable payments through social networks payments networks such as WeChat and 24/7 real-time payment channels like UPI.

Two other initiatives that Standard Chartered is involved in are our collaboration with SWIFT gpi and RippleNet. SWIFT gpi through its existing infrastructure has a much wider industry adoption, RippleNet is a redesign of the existing cross-border payments infrastructure.